April 30, 2012

Microsoft Investing $300 Million In Barnes & Noble Nook Subsidiary

Microsoft announced this week that it will invest $300 million in Barnes & Noble's (B&N) Nook e-reader to help create a subsidiary for the bookstore's e-book and college textbook businesses.

The new agreement values the Nook and textbook businesses at $1.7 billion. B&N's shares jumped nearly 70 percent after the announcement on Monday.

As Microsoft sits just months away from releasing its tablet-friendly Windows 8 operating system, the move is seen by analysts as a strategic investment.

"This is not a financial investment. It's a strategic investment to strengthen Windows 8 as a platform for tablets and e-reading," BGC Partners analyst Colin Gillis told Reuters.

According to the deal, Microsoft will receive a 17.6 percent stake in the new company, which has been provisionally named "Newco."

Microsoft said the deal means that there will be a Nook application for Windows 8 tablets, which is set to be released this fall.

William Lynch, the CEO of Barnes & Noble, said Nook software will still be available on devices like the iPhone and iPad.

The companies said the subsidiary will have an ongoing relationship with Barnes & Noble's retail stores, but what exactly that relationship will be was not given out in details.

"The whole reason the Nook business is expanding so rapidly is because book stores are committed to it and know how to market the product in that environment," Michael Norris, an analyst at Simba information, told the Associated Press (AP).

The agreement also settles a dispute between Microsoft and Barnes & Noble over patent litigation.

Last year, Microsoft filed lawsuits for patent infringement against B&N over the Nook as part of the company's tirade against devices that were running Google's Android system.

The new deal not only ends the patent dispute, but also helps the book retailer to expand its business into new markets.

"We will have the opportunity to collaborate on developing best-in-class reading technologies for those Windows users and extend the digital bookstore to hundreds of millions of people in the U.S. and internationally," Lynch told analysts on a conference call.

The company hinted in January that it might have a spin off its digital business, saying that investors were not giving the company enough credit for that growth.

Barnes & Noble said that it now intends to explore alternatives for how a strategic separation of the subsidiary may occur.